Time-varying general dynamic factor models and the measurement of financial connectedness

Matteo Barigozzi, Marc Hallin, Stefano Soccorsi and Rainer von Sachs ()
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Rainer von Sachs: Université catholique de Louvain, LIDAM/ISBA, Belgium

No 2020015, LIDAM Reprints ISBA from Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA)

Abstract: We propose a new time-varying Generalized Dynamic Factor Model for high-dimensional, locally stationary time series. Estimation is based on dynamic principal component analysis jointly with singular VAR estimation, and extends to the locally stationary case the one-sided estimation method proposed by Forni et al. (2017) for stationary data. We prove consistency of our estimators of time-varying impulse response functions as both the sample size and the dimension of the time series grow to infinity. This approach is used in an empirical application in order to construct a time-varying measure of financial connectedness for a large panel of adjusted intra-day log ranges of stocks. We show that large increases in long-run connectedness are associated with the main financial turmoils. Moreover, we provide evidence of a significant heterogeneity in the dynamic responses to common shocks in time and over different scales, as well as across industrial sectors.

Keywords: Locally stationary dynamic factor models; Volatility; Financial connectedness (search for similar items in EconPapers)
JEL-codes: C14 C32 (search for similar items in EconPapers)
Date: 2020-08-08
Note: In: The Journal of Econometrics, to appear, (2020)
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Time-varying general dynamic factor models and the measurement of financial connectedness (2021)
Working Paper: Time-Varying General Dynamic Factor Models and the Measurement of Financial Connectedness (2019)
Working Paper: Time-Varying General Dynamic Factor Models and the Measurement of Financial Connectedness (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:aiz:louvar:2020015

DOI: 10.1016/j.jeconom.2020.07.004

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